NLRB Decision Addresses Interaction Between Confidentiality And Nondisparagement Provisions In Severance Agreements And Section 7 Rights

• Jurisdiction: United States,Federal
• Law Firm: Littler Mendelson
• Subject Matter: Employment and HR, Employee Rights/ Labour Relations
• Author: Mr Jonathan Levine, Maura Mastrony and Lindsay M. Rinehart
• Published date: 02 March 2023

• In McLaren Macomb, the NLRB overturned two decisions that had permitted employers to include confidentiality and nondisparagement provisions in severance agreements.
• "Mere proffer" of a severance agreement that conditions receipt of benefits on the "forfeiture of statutory rights" violates the NLRA.
• This Insight includes key takeaways from the Board's decision and answers to common employer questions.

During the past few years, employers have seen efforts to restrict the use of confidentiality and nondisparagement provisions in severance agreements at both the state and federal levels. The National Labor Relations Board (NLRB or Board) has now joined the party.

Two decisions issued by the Board under the prior administration-Baylor University Medical Center, 369 NLRB No. 43 (2020) and IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020)-broadly permitted employers to include confidentiality and nondisparagement provisions in severance agreements. Last week, the NLRB overturned those decisions in McLaren Macomb, 372 NLRB No. 58 (2023).

Under the Board's new rule, the "mere proffer" of a severance agreement that conditions receipt of benefits on the "forfeiture of statutory rights" (e.g., the acceptance of overbroad confidentiality and nondisparagement provisions) violates Section 8(a)(1) of the National Labor Relations Act (NLRA).

Prior Precedent

The Board's 2020 decisions in Baylor University Medical Center and IGT d/b/a International Game Technology held that an employer could lawfully include in a separation agreement confidentiality and nondisparagement clauses, and clauses prohibiting employees from participating in claims brought by any third party against the employer, in exchange for severance payments.

In Baylor, the Board moved away from examining the language of the severance agreement at issue and instead focused on the circumstances under which the agreement was presented to employees. In doing so, the Board held that Baylor did not violate the NLRA by the "mere proffer" of a severance agreement that required the signer to agree not to "pursue, assist, or participate in any [c]laim" against Baylor and to broadly maintain confidentiality surrounding the agreement. The Board reasoned that the agreement was not mandatory and did not affect terms and conditions of employment because it pertained exclusively to post-employment activities. Further, there was no allegation that anyone offered the agreement had been unlawfully discharged or that the agreement was offered under circumstances that would tend to infringe on Section 7 rights. Months later in IGT, the Board cited to Baylor in determining that a nondisparagement provision in a severance agreement was lawful where the agreement was "entirely voluntary, [did] not affect pay or benefits that were established as terms of employment, and [had] not been proffered coercively."

The McLaren Decision

In McLaren, a unionized teaching hospital in Michigan permanently furloughed 11 union employees, presenting each with a severance agreement and general release. The agreement included the following provisions:

Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.

Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee's employment. At all times hereafter, the Employee agrees not to make statements to Employer's employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.

Despite being relatively standard severance agreement terms under prior precedent, the...